Fauji Fertilizer Bin Qasim Limited : Near term pain set to continue; recovery seen next year
We revise our consolidated earnings estimates of FFBL by -84%/-14%/+3% over CY18/19/20E, respectively. We, however, maintain our ‘Neutral’ stance on the stock with a revised TP of PKR41.0/sh.
The outlook for FFBL’s core fertilizer business is mixed. The increase in DAP prices seems insufficient to offset the impact of soaring raw material costs. On the other hand, dynamics of urea market have improved considerably during CY18, however, risk to sustainability of current urea prices has emerged.
Furthermore, performance of company’s investments has not been encouraging where combined losses (FFBL’s share) from the two food subsidiaries increased by 2% YoY in 1HCY18. Financial results of associated company PMP also turned negative.
Potential stake sale in FFL remains an upside risk to our estimate, materialization of which could result in (i) a substantial one-off gain, (ii) improved balance sheet position, and (iii) reduction in near-term losses.
Key risks to our call include: (i) progress on divestment of company’s share in Fauji Foods Limited (FFL), (ii) higher than anticipated gas tariff hike, and (iii) greater than expected losses from investments.
Fauji Fertilizer Bin Qasim Limited is a Pakistan-based holding company. The Company manufactures, purchases and markets fertilizers. It is involved in meat, dairy and coal based energy generation sectors. It has identified its potential business segments and has undertaken investments in the areas of food, financial, power sector and wind energy projects. Its products include Granular Urea, such as Sona Urea, and Di Ammonium Phosphate (DAP), such as Sona DAP. Sona Urea is a synthetic organic compound containing nitrogen in amide form available in the form of white solid prills. It is applied to soil and also suitable in solution form as spray application. Sona DAP contains nutrient element, phosphorous besides nitrogen available in flowing granular form Granules are stronger, harder and of uniform size. It is suitable for various crops and soils recommended for initial application. It produces over 791,260 metric tons (MT) of DAP and approximately 433,610 MT of Urea.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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